SIP Calculator
SIP Calculator – Your Guide to Smarter Investing
Many investors mistakenly believe that SIPs (Systematic Investment Plans) and mutual funds are the same. However, SIPs are just a structured way of investing in mutual funds, with the alternative being a lump sum investment. A SIP calculator is a handy tool designed to estimate the potential returns on your investments.
What is a SIP Calculator?
A SIP calculator is a simple tool that can be used for projecting the returns investors might earn from their mutual fund investments through SIPs. With SIPs gaining popularity, particularly among millennials, this tool gives an estimate of investment growth with time.
The returns that one would get is just an approximate as the performance of the markets, fund managers, exit load, and so on can hamper the profits that one has generated. Although the SIP gives the maturity amount at the maturity period, a SIP return calculator doesn't incorporate any extra costs which may eventually be charged over your returns.
Why Use SIP Return Calculator
Many financial experts consider SIPs a smarter and more disciplined way of investing as opposed to lump sum investment. It promotes regular saving habits in comparison to market timing risks, and the wealth built over the years is unparalleled.
An online SIP calculator simplifies the financial planning of an individual with a rough idea of how much wealth he would be able to accumulate based on his investment amount, tenure, and expected rate of return. Though it is not a precise return-generating tool, it gives a much-needed perspective as to how systematically your money is going to grow over the years.
If you’re considering mutual fund investments, using a SIP calculator can help you make informed decisions and stay on track toward your financial goals!
Some of the key benefits of using a SIP calculator include:
- Help you determine the ideal investment amount based on your goals.
- It reflects showing the total sum you have invested over time.
- Providing an estimated projection of your potential returns.
How Do SIP Calculators Work?
A SIP calculator works according to the following formula:
M=P×(i(1+i)n−1)×(1+i)
Where:
M = Maturity amount (total corpus at the end of the investment period)
P = Fixed investment amount (monthly SIP contribution)
n = Number of installments (total months of investment)
i = Periodic interest rate (annual interest rate divided by 12)
Example Calculation:
Assume you are paying ₹1,000 every month for 12 months. Assume the annual rate of return is about 12%.
Monthly rate of return =12% ÷ 12 = 1% =0.01
Using the formula,
M=1,000×(0.01(1+0.01)12−1)×(1+0.01)
After one year, your investment would become approximately ₹12,809.
It has to be noted that the actual rate of return after SIP investment will actually depend on the market conditions.
The interest rates may change, and thus the final maturity amount will change.
Rupee cost averaging and compounding benefits SIPs as a long-term investment strategy.
A SIP calculator gives an approximate value, thus helping investors to plan their financial goals with more clarity.